Multinational Enterprise: International Finance Paper

Multinational Enterprise
Multinational Enterprise

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Multinational Enterprise

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Please comment/answer the following two questions:

1. What are the main reasons that the cost of capital for a MNE tend to be lower than a domestic counterpart domiciled in the same country?
2. Describe a situation/reasons where the cost of capital for a purely domestic firm might be actually lower than for a MNE that is headquartered in the same country.

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Multinational Enterprise

Reasons why the cost of capital for an MNE tend to be lower than a domestic counterpart domiciled in the same country

A multinational enterprise operating in the global and international markets will tend to have a lower cost of capital. There are a number of scenarios and reasons for this phenomenon. A first is that the MNE has access to a wide array of capital markets, and hence a choice of more sources of funding (Moffett, Stonehill, & Eiteman, 2015, p. 292). Within these sources, there is a high probability of finding capital at a lower cost than is available in their home country.

A second reason is that the portfolio of securities available to a firm with operations in one country is only appealing to a small circle of investors within that state. On the other hand, an MNE has a portfolio of securities that appeal to both local and international investors (2015, p. 293).

A situation and/or reasons where the cost of capital for a purely domestic firm might be actually lower than for an MNE that is headquartered in the same country.

In some countries, the capital markets are well developed. Such scenarios are primarily in the economies where there is a high dependence on manufacturing……

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